Theory of National Competitive Advantage of Industries
Porter diamond model is an economic model that can be used to understand the different factors that give certain industries or markets a competitive advantage in one nation or country compared to another. It is also known as diamond model or Porter's Diamond Theory of National Advantage.
The model derives its name from its semblance to a diamond with each corner representing one of the four factors that makes the framework. Businesses use this model to determine the competitiveness of international markets.
The four main factors that make up the porter diamond model are; Firm Strategy, Structure and Rivalry; Factor Conditions; Demand Conditions; and Related and Supporting Industries.
Firm Strategy, Structure and Rivalry
This aspect focuses on the competition within the native market of a country. The particular strategy and structure of a company that will help it excel in a given market depends on the region or country where the market is located.
Also the rivalry in the native market will inevitably shape the level of innovation within a given sector.
This refers to the resources available to businesses in a given country or region that helps it perform better than those in other countries or regions. Factors condition can be basic factors - referring to natural resources or advanced factors - referring to infrastructures, skillset (experts) and capital.
Demand and supply drives any market. The higher the demand for a given product, the harder the company has to work to meet this demand. By doing so, the company grows to become a major player not only in the local market but in international markets as well.
Related and Supporting Industries
No business is an island. That is to say no business operates independently without needing other businesses. For example a dependable financial sector is a major driver for businesses around the world.
This is business access to capital is much easier compared to those countries or regions with an unstable financial sector.
Although these four factors are considered the major attributes of the Porter Diamond Model, there are two more factors that are often discussed along side these four. These are chance and government.
Chance refers to unpredictable events like a natural disaster or pandemic that will turn the tides of business to favor a specific market or industry in a country. Government refers to the role of a country's government in providing an environment where businesses can thrive.
Real-life example of the Porter Diamond theory in action;
The US is a haven for startups for many reasons which include access to capital, access to a skill, good infrastructures, high demand and so many supporting businesses. It makes sense why the US is has the most number of successful startups compared to other countries of the world.